Oracle, Google in court over Java patents

Patent Dispute

Published 4:00 am, Monday, September 19, 2011

FILE - In this Nov. 8, 2010 file photo shows Oracle CEO Larry Ellison arriving at the Federal Building in Oakland, Calif., before he testified in Oracle's trial against archrival SAP. A federal judge has thrown out a $1.3 billion jury verdict against German business software maker SAP AG, slamming the penalty as "grossly excessive" and dealing an unexpected setback to SAP's Silicon Valley rival Oracle Corp. The ruling Thursday is a surprising twist in a landmark intellectual property case. Larry Ellison, Oracle's outspoken CEO, has provided ample theatrics, pillorying SAP for its amateurish theft of software and customer-support documents from password-protected Oracle websites. (AP Photo/Paul Sakuma, file) less

FILE - In this Nov. 8, 2010 file photo shows Oracle CEO Larry Ellison arriving at the Federal Building in Oakland, Calif., before he testified in Oracle's trial against archrival SAP. A federal judge has thrown ... more

Google and Oracle CEOs will square off in court today to resolve a dispute that may pose the biggest threat to Google's Android mobile software, now running on more than 150 million devices.

Google's Larry Page and Oracle's Larry Ellison were ordered to appear before a federal court magistrate in San Jose after tussling over patents for more than a year. Oracle accused Google of infringing on patents related to its Java software, and a settlement means the companies avoid the risk of having a jury trial decide whether Google owes royalties.

"It's like Gorbachev and Reagan," said Scott Daniels, a lawyer with Westerman Hattori Daniels & Adrian LLP in Washington. "The greatest chance of settling the case, of ending the Cold War, to use the analogy, is to have the two highest figures there."

Oracle's suit, filed in August 2010, may represent a bigger menace to Google's software than challenges from Apple, which has already won patent decisions against Android device makers. In settlement talks, Page will try to avoid having to pay Oracle licensing fees that analysts at Citigroup Inc. said could be as high as $15 per device. That sum might slow the adoption of the software, which Google gives away.

Ellison is under pressure to wring profit from Sun Microsystems and its Java software after a report in June showed hardware sales slowing, raising concern that Oracle may not be making the most of the $7.3 billion deal, which closed last year.

Tough opponent

Ellison has demonstrated his mettle as an opponent, said Neil Herman, an analyst at Ticonderoga Securities. He prevailed in 2009 after an almost two-year fight against Swiss billionaire Ernesto Bertarelli over who can determine the challenger in the America's Cup yachting competition.

And after a trial where Ellison testified, a federal jury awarded Oracle $1.3 billion in damages against rival SAP AG, which it accused of stealing software. While a judge ruled in September that the verdict was "grossly excessive," Oracle vowed to pursue "the full measure of damages" it believes are owed.

"Larry Ellison has been masterful historically in his ability to hire good attorneys who give good advice and has been quite successful in the legal battleground," Herman said.

Ellison, who founded Redwood City's Oracle in 1977 and has been its CEO since then, is known for his blunt manner, Saffo said. Within days of becoming CEO in April, Page shook up the company's leadership, promoting seven of his managers to senior executive positions to streamline decision making.

On Page's watch, Mountain View's Google has also bulked up in patents and the attorneys it needs to defend against allegations of infringement. The company agreed in August to buy Motorola Mobility Holdings for $12.5 billion, gaining more than 17,000 patents.

'Well-matched CEOs'

"The only difference between these two men is their age, not their skills," said Saffo, who holds some shares of Google. "They are two well-matched CEOs."

Both executives were "strongly" urged to attend today's session by U.S. District Judge William Alsup, who has been overseeing the case, after both sides said they would send lower-ranking executives.

Magistrate Judge Paul Grewal in San Jose will supervise the settlement talks. Oracle initially estimated that damages from allegedly unauthorized use of Java technology would amount to as much as $6.1 billion. Alsup threw out the tally, calling it "wishful thinking," according to a July 22 order.

In the same order, Alsup took Google to task for what he called "Soviet-style negotiation" in suggesting that a reasonable royalty would be at most $100 million.

Undeterred by the judge's reproach, Ellison will probably ask for a licensing fee for each device that sports Android software, said Walter Pritchard, an analyst at Citibank Global Markets. Oracle may seek anywhere from $5 to $15 per device, he said. Richard Windsor, an analyst at Nomura Securities, said Oracle may seek less than $1 a device.

Any amount would add up quickly. More than 550,000 Android devices are activated each day, Page said last month. Introduced in 2008, Android has become the leading software for smart phones, with 43 percent of the market in the second quarter, up from just 17 percent a year earlier, according to Gartner Inc.

Industry standard

Java, the point of contention in the trial, has emerged as an industry standard for writing business software and is widely used to create Web-based applications. After buying Sun in January 2010, Oracle said it would make more money from Java than it had under its inventor. Sun collected just $220 million in Java-related revenue in fiscal 2008.

Companies such as Research In Motion, Amazon.com and Sony already license Java. Oracle claims that Google's Android relies on patented Java technology.

Android has proven itself vulnerable in legal battles before. Apple won a U.S. International Trade Commission ruling in July in a patent-infringement case targeting HTC's Android-based mobile phones.

A royalty fee may cause some makers of handsets consider alternative operating systems. Still, Google, with its $39.1 billion in cash and short-term securities, could absorb some of the fees, said Will Stofega, program director at IDC.

If Oracle does score a victory against Google, it won't want to extract too high a fee, said Ray Valdes, an analyst with Gartner. Android needs to be successful for Oracle to get any royalties from the devices, he said.

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